Pacific Rubiales Announces Successful Farm-In Agreement for Two Blocks in the Republic of Guatemala and Exploration Success in the Guama Block in Colombia

Oct 18, 2010, 07:32 ET from Pacific Rubiales Energy Corp.

TORONTO, Oct. 18 /PRNewswire/ -- Pacific Rubiales Energy Corp. (TSX: PRE; BVC: PREC) announced today that it has executed a Farm-in Agreement  with Flamingo Energy Investment (BVI) Ltd., Chx Guatemala Limitada, and Compania Petrolera del Atlántico, S.A., through which the Company will earn-in a 55% participating interest, as well as operatorship, in the "7-98" Contract, which corresponds to the area known as "A-7-96", made up of the "N-10-96" and "O-10-96" blocks located in the Republic of Guatemala (the "Contract"). The Company also announced exploration success at the Pedernalito-1X exploration well in the Guama Block in northern Colombia.

Ronald Pantin, Chief Executive Officer, commented: "The Guatemalan farm-in that we announced today reflects our interest in expanding into countries with high exploration potential that match our technical skills.  Separately, the exploration success in Guama confirms our vision of the prospectivity of this block and adds to our growing presence in the natural gas sector. These new steps mark the beginning of the road towards becoming the most successful oil and gas company in Latin America."  

GUATEMALA FARM-IN

The Company has identified an area with very attractive exploration potential in the Republic of Guatemala. This area is the southeast prolongation of the prolific Carbonate Bank of the Yucatan oil province, which has borne approximately 70 billion barrels of Mexico's original oil in place. In Guatemala, 10 oil fields have been found in the same Mesozoic reservoirs. The Contract is located in the southern Petén Basin and is characterized by the presence of abundant oil seeps and oil occurrences in seismic shot-holes. By signing the Farm-in Agreement, the Company gains access to five prospects, with a potential of more than 4 billion barrels of oil in place.

Under the Farm-in Agreement, the Company will earn its participating interest, as well as operatorship of the Contract, by executing the following activities (collectively the "Consideration"):

  1. reprocessing of 500 km of existing 2D seismic  data;
  2. 12,000 km(2) of aero-gravimetry and magnetometry;
  3. geological and geophysical studies;
  4. acquisition, processing and interpretation of 300 km of 2D seismic; and
  5. the drilling of an exploratory well.

The first four activities described above will have an approximate cost of US$11,200,000 and the drilling of the exploratory well is expected to cost US$10,000,000. Under the Farm-in Agreement, if the Company determines that the drilling of a second exploratory well is required, the second well would be paid for by the parties according to their participating interests. If a second well is required, the total amount potentially to be invested by the Company is estimated to be US$25,875,000.

In accordance with the law that regulates hydrocarbons exploitation in Guatemala, the Company will be entitled to act as an oil and gas operator with a participation in the production, within a transparent legal framework, which allows it to enjoy legal and contractual guarantees. This includes: (i) the exclusive right to explore for and produce oil in specific and well-delineated areas and blocks; (ii) the right to export and commercialize the oil and gas produced; (iii) the right to recover all recoverable costs attributable to the Contract; (iv) the right to import under a special duty-free regime the machinery and equipment necessary for operations, as well as to re-export it back;  and (v) the right to reinvest or redirect to foreign countries the profits obtained from the operations.

The assignment of the working interests is subject to governmental and/or regulatory approvals, as well as the satisfaction of the Consideration, among other conditions. Until this occurs, the Company's participating interest as well as operatorship will be held in trust by the other parties.

GUAMA BLOCK

Pedernalito-1X was drilled in the Guama Block as a new field exploration well which targeted the thinly laminated sands of the Middle Miocene Porquero Formation, on the flank of an incipient diapiric feature, with a 2,355 acre closure. The combined stratigraphic-structural play that the Company evaluated was based on a series of stacked seismic patterns with well-developed AVO anomalies.

The well was spudded on September 8, 2010 and reached final depth of 7,100 feet measured depth (MD) on October 8, penetrating the massive Porquero Formation from surface down to true depth.  During drilling, the well exhibited several gas shows that forced the Company to increase the mud weight up to 15.5 ppg. Despite this, the well gas-kicked twice, at 4,946 feet MD and 6,068 feet MD, flaring gas on both occasions.

Following open-hole logging, the petrophysical evaluation indicates a total of 29 feet of net pay in low-resistivity, thinly laminated sands in eight different zones with average porosity of 11% and average water saturation of 59%. Also, a 22 foot core was recovered, and laboratory tests are being conducted in order to study an eventual gas shale development in the block.

The well will now be cased and a production test will be performed in one stage on the following intervals:

INTERVAL

FROM - TO

NET PAY

1

5,980 – 5,990

(10 feet)                  

2

5,934 – 5,938

(4 feet)                  

3

5,902 – 5,906

(4 feet)                  

4

5,868 – 5,872

(4 feet)

5

5,602– 5,605

(3 feet)            



The test will be designed for an estimated static pressure of 3800 psi at 5,900 feet MD, which takes into consideration the sharp increase of drilling mud weight from 9.9 ppg to 15.8 in less than 6,000 feet

This new discovery underlines the prospectivity of the area, and adds to the resource base upon which the Company is building its natural gas presence. Alternatives for the development of these resources will have to be evaluated, but will undoubtedly include internal and export markets, as well as local electricity generation.

The Guama Block is located in northern Colombia and is part of the Lower Magdalena Basin. The Company holds a 100% working interest in the block.

Pacific Rubiales, a Canadian-based company and producer of natural gas and heavy crude oil, owns 100 percent of Meta Petroleum Corp., a Colombian oil operator which operates the Rubiales and Piriri oil fields in the Llanos Basin in association with Ecopetrol S.A., the Colombian national oil company. The company is focused on identifying opportunities primarily within the eastern Llanos Basin of Colombia as well as in other areas in Colombia and northern Peru. Pacific Rubiales has a current net production of approximately at 62,000 barrels of oil equivalent per day, after royalties, with working interests in 40 blocks in Colombia, Guatemala and Peru.

Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

FOR FURTHER INFORMATION

Mr. Ronald Pantin

Chief Executive Officer and Director

Mr. Jose Francisco Arata

President and Director

(416) 362 7735

Ms. Belinda Labatte

(647) 428 7035



Cautionary Note Concerning Forward-Looking Statements

This press release contains forward-looking statements. All statements, other than statements of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future (including, without limitation, statements regarding estimates and/or assumptions in respect of production, revenue, cash flow and costs, reserve and resource estimates, potential resources and reserves and the Company's exploration and development plans and objectives) are forward-looking statements. These forward-looking statements reflect the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on, the Company. Factors that could cause actual results or events to differ materially from current expectations include, among other things: uncertainty of estimates of capital and operating costs, production estimates and estimated economic return; the possibility that actual circumstances will differ from the estimates and assumptions; failure to establish estimated resources or reserves; fluctuations in petroleum prices and currency exchange rates; inflation; changes in equity markets; political developments in Colombia, Guatemala or Peru; changes to regulations affecting the Company's activities; uncertainties relating to the availability and costs of financing needed in the future; the uncertainties involved in interpreting drilling results and other geological data; and the other risks disclosed under the heading "Risk Factors" and elsewhere in the Company's annual information form dated March 9, 2010 filed on SEDAR at www.sedar.com. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.

SOURCE Pacific Rubiales Energy Corp.